Even in a Digital World, Globalization Is Not Inevitable

In the aftermath of the UK’s Brexit vote and Donald Trump’s election in the U.S., globalization is seen as a

political hot potato rather than a hot ticket to prosperity. This populist backlash reminds us that the rewards of globalization are not evenly distributed, and as a result there has been some questioning of the idea that borders should be open to trade — as well as concerns about what might happen instead. In the week since Trump was elected, the number of Google searches for “trade war” has jumped sevenfold and continues to climb.

Despite this shift, a significant number of experts continue to believe in the virtually unlimited potential of globalization. Most of them focus on digitalization specifically and on communications technology, though some attention continues to be paid to transportation infrastructure (e.g., Parag Khanna’s Connectography).

I like to refer to such exaggerated perceptions of globalization as “globaloney,” a term coined in the 1940s by Clare Boothe Luce. Thomas Friedman’s famous proposal that, thanks to the internet, the “world is flat” (advanced in a 2005 book bearing that title) articulates this idea in a way that is clear and simple — and wrong.

A recent digitalization-related example of globaloney is Ian Goldin and Chris Kutarna’s The Age of Discovery, which argues that, thanks to radically increased connectedness, we may be on the verge of a global Renaissance. As luck would have it, I was on a panel with Goldin on globalization and risk three days after the U.S. election and suggested that Trump embodied the kind of risk that could plausibly derail a global Renaissance. Goldin’s response: Whatever might happen to physical flows thanks to, say, a trade war, it wouldn’t interfere with the explosive growth of cross-border digital flows.

While I agree that digitalization can facilitate globalization in certain respects (e.g., by making it easier for small firms to export) here are eight reasons why I am unconvinced that digital technologies are sufficient, given everything else that is going on in the world, to drive globalization forward:

1. For more than 150 years now, new technologies have been touted as making the world one. The poor record on prior proclamations raises doubts about new ones. Friedman’s declaration that the world is flat was motivated by the example of Indian software. Over a decade later, Indian software exporters still generate more than 80% of their revenues and, in most cases, all their profits, from English-speaking markets, remain very sensitive to visa and offshoring regulations (a particular concern right now), are investing close to clients in the West to move up the value chain (into consulting), and still depend critically on software programmers in India costing a fraction of those in the West (a difference that would quickly vanish in a truly flat world).

2. Looking at the data, the international proportion of phone calls, friendships on Facebook, internet traffic, e-commerce, and Twitter ties range from 5% to 25%. In other words, domestic interactions dominate international ones for all these digital categories. National borders still matter a great deal, and so does distance along multiple dimensions. Language differences in particular still have a very large dampening effect on all kinds of international communications.

3. The internationalization levels of digital flows do seem, at least for some categories (internet traffic and e-commerce), to be increasing over time, but modestly rather than explosively. While McKinsey’s latest report on digital globalization mentions at least six times that international data flows grew 45fold since 2005, domestic data flows also expanded greatly over the same period. My best estimate is that the international proportion of internet traffic roughly doubled since 2005. That’s a large increase, but a far cry from 45fold. Hype about the absolute growth of international flows is not a helpful guide to increases in internationalization intensity.

4. Even if the internationalization level of digital flows were growing explosively, not capping their weight leaves room for them to swamp everything else, including (non-digital) trade and investment. Think, for instance, of transatlantic phone calls in the early 1930s, right after New York–London service was inaugurated. Taken by themselves, the astronomical growth rates would have indicated robust globalization. But in fact there was soon a two-thirds drop-off in world trade in the early 1930s, which is why that period is usually considered to mark a definitive end to the first wave of globalization.

5. A focus on digital flows also ignores the fact that some of them are inextricably linked to physical flows, which are generally agreed to be more under the thumb of national governments. Cross-border e-commerce would surely diminish if goods couldn’t be shipped easily across borders to fulfill orders. And people flows stimulate both trade and information flows. The country pairs with the largest telephone traffic, for example, also rank among the top migration routes.

6. Governments can interfere with digital as well as physical flows. Especially given the fragmentation of the ”splinternet,” dramatized by the development of a distinct internet ecology in China, this is currently a matter of much concern. And these concerns are exacerbated by the recognition that cyberspace opens up a new arena for warfare: According to internet analysts, dozens of nations now have the ability to hack others as an extension of their foreign policy. The broader point, which is particularly useful for countering the idea of technology above all else, is that policy choices can trump technological developments.

7. Digital devotees tend to conflate digitization with intangible assets — the intensity of which has indeed soared in the last half century — in ways that exaggerate digital transformation’s potential. Some kinds of know-how, for example, are generally regarded as undigitizable. Think of tacit knowledge, which John Hagel III and John Seely Brown, who have thought deeply about information flows, argue is increasing rather than decreasing in value.

8. Another common error is to conflate digitization with technology and to assert that all technological change is pushing in the direction of increased globalization. But developments such as robotics and 3-D printing might end up reducing rather than increasing trade levels, depending on how quickly their costs drop. Online educational technology could reduce cross-border flows of university students. And who knows what virtual reality might end up doing to tourism levels?

Another recent digitalization-related contribution, Richard Baldwin’s The Great Convergence, takes a more specific tack: It distinguishes between a first era of globalization, driven by falling transport costs, a second era, in which communication facilitated the dispersion of economic production and know-how, and a third (still prospective) era, fueled by the virtual movement of people through “telepresence” and “telerobotics.” One can certainly see the large potential that Baldwin is getting at: Realizing some of the gains from immigration without any having to take place. But purely telematic interactions do sound a bit cold. And even if they themselves were engineered to be simpatico, it is hard to imagine that radical increases in the offshoring of labor services would be viewed as a successful and therefore sustainable outcome in an era of so much concern about jobs. (Of course, that concern may shift as northern Eurasia, including China, experiences demographic crunches.)

Why is it important to call people out on globaloney’s forms, both digital and otherwise? At the level of public policy, globaloney breeds complacency, even in such dangerous times. As the CEO of Soho China, Zhang Xin claimed at Davos this year, “No matter what, despite all the surprises last year in the political election results, globalization will continue. We are so connected today, and coming to Davos is reaffirming that.” But the disconnect between the globalized Davos elite and the national and local commitments of their customers and employees fed the very backlash we are seeing. And at the level of business strategy, globaloney leads to overconfidence about such notions as digital platforms being silver bullets for all the time and treasure that globalization typically takes. “What, me worry?” is not a good response to our present predicament.

Pankaj Ghemawat is the Global Professor of Management and Strategy and Director of the Center for the Globalization of Education and Management at the New York University’s Stern School of Business. He is also the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Spain. He is the author of World 3.0: Global Prosperity and How to Achieve It.